"Occupied" means that a place is being used. For example, when there are people already using a shared meeting room at an office, the room "is occupied":

It looks like this room is occupied, so why don't we try the one at the other end of the hall.

Some things that you can describe as "occupied" include:

• a bathroom stall
• a hotel room
• a taxi

"Occupied" is slightly formal. A less formal way to express the same idea is:

Someone's in here!

Someone's using it.